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[2013] ZAGPPHC 370
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Huang and Others v Commissioner of the SA Revenue Service and Another (SARS 4/2013) [2013] ZAGPPHC 370; 2015 (1) SA 602 (GP) (18 November 2013)
IN THE NORTH GAUTENG HIGH COURT, PRETORIA
REPUBLIC OF SOUTH AFRICA
CASE NO: SARS 4/2013
DATE: 18 NOVEMBER 2013
NOT REPORTABLE
NOT OF INTEREST TO TOTHER JUDGES
In the matter
between:
JEN-CHIH HUANG and 13
OTHERS
.....................................................
Applicants
and
COMMISSIONER OF THE SA REVENUE SERVICE
...............
First
Respondent
ADV PJJ MARAIS
NO
.................................................................
Second
Respondent
In
re:
COMMISSIONER
OF THE SA REVENUE SERVICE
............................
Applicant
and
JEN CHIH HUANG and 13 OTHERS
JUDGMENT
Tuchten J:
1 On 9 October 2013, Ledwaba DJP, sitting in chambers, heard an ex
parte application (“the inquiry application”) and
granted
an order (“the inquiry order”) at the instance of the
Commissioner for the SA Revenue Service (“SARS”)
designating the second respondent (“the presiding officer”)
to act as presiding officer in an inquiry (“the inquiry”)
to be held in terms of Part C of the Tax Administration Act, 28 Of
2011 (“the TAA”).
2 The purpose
of the inquiry was stated in the order as being an investigation into
the alleged non-compliances with the provisions
of the certain
identified tax legislation by the first, second and third applicants
and 91 other named juristic persons. The inquiry
was convened to
begin on 11 November 2013, the day the present application was set
down for hearing.
3 The order for
the inquiry was preceded by a successful ex parte application (“the
warrant application”) for a search
and seizure warrant (“the
warrant”) before Van der Merwe DJP in chambers on 18 April
2013, authorising the search for
and the seizure of certain material
affecting the first three applicants. The first and second applicants
are married to each other.
They control the third applicant.
4
The searches were carried out on 26 April 2013 and a large
number of documents were seized. The present applicants then brought
an application for the reconsideration (“the reconsideration
application”) of the warrant application on various grounds,
amongst which were that rule 6(12(c) permitted a reconsideration of
an order granted in the absence of a party.
[i]
SARS’ answering affidavit was sworn on 15 July 2013 and was
presumably delivered shortly after that date. The applicants
did not
deliver a replying affidavit but set the matter down for hearing on
28 October 2013.
5
Because there was no replying affidavit filed, the applicants
unilaterally removed the reconsideration application from the roll.
Although the unilateral removal was probably irregular and invalid,
SARS did not seek to have the reconsideration application argued
on
the date allocated. To date no replying affidavit has been delivered
and the reconsideration application has not been re-enrolled.
6
SARS has to date not supplied the applicants with a copy of
the inquiry application.
7
In their notice of motion in the present application, the
applicants seek a direction that the inquiry should not proceed until
the reconsideration application has been adjudicated. They further
seek orders directing SARS to give them a copy of the inquiry
application, giving them leave to supplement their founding affidavit
after they receive the inquiry application and setting the
inquiry
aside. In addition, the applicants seek, conditionally, an order
declaring certain sections of the TAA unconstitutional
and thus
invalid.
8
Before me only the postponement of the inquiry was sought
urgently. In reply, counsel for the applicants confined the urgent
relief
sought to orders that until the final outcome of the
reconsideration application, the first, second and third applicants
be excused
from giving evidence at the inquiry until the
determination of the reconsideration application and that, until
then, no document
or information derived from the search and seizure
under the warrant be employed in the examination of any witness.
9
Although any form of postponement of the inquiry and any
limitation on the power of the presiding officer to receive any
information,
documentary or otherwise, was vigorously resisted on
behalf of SARS, this formulation of the relief sought was accepted by
SARS
if I ruled that a postponement of the applicants’ duty to
give evidence at the inquiry were justified. But counsel for SARS
submitted that the postponement order should make plain that
documents or information obtained by SARS from sources other than
the
search and seizure might notwithstanding any order be presented or
adduced at the inquiry. In other words, that the mere fact
that a
document was obtained in the search and seizure or that an item of
information available to SARS did not preclude the presiding
officer
from receiving a similar or identical document or an item of
information obtained from a source other than the search and
seizure.
I shall deal with this below.
10
The argument before me was wide ranging but because I am
called upon only to pronounce on the postponement and the use of
documents
and information pending the determination of the
reconsideration application, and to do so urgently, I shall not deal
in this judgment
with the considerations which led me to come to my
conclusions.
11
In my view the issues before me turn on the issue of
convenience in the administration of justice. This requires an
analysis of
the powers of a presiding officer in an inquiry convened
under the TAA and of the status, at such an inquiry, of information
derived
from a search and seizure under a warrant which may
potentially be declared invalid.
12
As I see it, the starting point is that our taxation system is
one of self- assessment. In the broadest terms, a taxpayer calculates
his income and legitimate deductions and declares his taxable income
based on these, his own, calculations. Under ss 29 to 31 of
the TAA,
a taxpayer must keep all records, books of account and documents that
enable him to comply with the TAA or are specifically
required under
a tax Act (as defined) or to enable SARS to be satisfied that he has
observed these requirements and must make them
available for
inspection.
13
SARS has broad powers under ss 59 to 64 of the TAA to search
premises for and seize “relevant material”, defined in s
1 to mean any information, document or thing that is foreseeably
relevant for tax risk assessment, assessing tax, collecting tax,
showing non-compliance with an obligation under a tax Act or showing
that a tax offence has been committed.
14
But such a search and seizure can only take place under the
authority of a warrant issued by a judge or, where relatively small
amounts are involved, a magistrate. Section 59(2) prescribes that
SARS must apply ex parte for such a warrant. Such an application
is a
judicial proceeding. Special procedural rules are applicable to such
ex parte applications. In particular, a person affected
by such an
application and the order made ex parte, in this case that a warrant
issue, may apply for the reconsideration of the
ex parte order. The
reconsideration application to which I referred above was brought
precisely under these circumstances.
15
The fact of the ex parte order gives the applicant for that
order, in this case SARS, no special status. A reconsideration
application
involves a rehearing of the application but with
additional material added, usually in the form of an answer to the
allegations
made for the purpose of the initial ex parte proceedings
and a reply by the ex parte applicant. In the present case the
applicants
wish to deliver an affidavit in reply to that last
mentioned affidavit of SARS as ex parte applicant. As I understood
the debate
before me, SARS does not dispute the applicants’
right to have the last evidential word in the reconsideration
application
but complains that if and when it is delivered it will be
late and thus may only be received in evidence on condonation of its
lateness.
16
Although the search and seizure process potentially invades
the privacy and dignity of the subject of the process, the process
itself
is permissible and, indeed, essential in a constitutional
state such as ours if conducted strictly in accordance with law. But
the law also recognises that when the warrant under which a seizure
has been made is unlawful, the court which finds the warrant
to be
unlawful may in certain circumstances direct that the evidence seized
pursuant to the unlawful warrant may be preserved.
That is certainly
the case where criminal proceedings are pending.
[ii]
It
was submitted that Ivanov v North West Gambling Board and Others
[iii]
was authority for the proposition that where no criminal proceedings
are pending, no preservation order is competent. I do not
agree. In
Ivanoff, the facts were that an order setting aside the warrant was
granted and the question of return of the seized
items postponed for
later consideration. The Ivanoff court refused to grant a
preservation order on equitable grounds, not on principle.
And s
66(4) of the TAA specifically empowers the court to authorise SARS to
retain the seized material or copies in the interests
of justice.
17
To summarise: in principle, despite
the applicants’ tardiness, the court hearing the
reconsideration application may uphold
the attack on the warrant
application and set the warrant aside. That court may, if it upholds
the attack, also direct that some
or all the seized material be
returned to the applicants but that does not inevitably follow upon a
successful attack on the warrant.
And in considering whether or not
to grant a preservation order, a court may have regard to the fact
that amongst the material
seized under the hypothetically invalid
warrant is material which the taxpayer ought under the TAA to have
made available to SARS
upon its request.
18 I turn to
consider the powers of the presiding officer. Under s 52(1) of the
TAA, he determines the conduct of the inquiry as
he sees fit. Under s
54, the presiding officer has the same powers as are vested in the
President of the tax court under ss 127
and 128. Section 127 is
relevant for present purposes and reads:
Non-attendance by witness or failure to
give evidence
(1)
A person subpoenaed under section 126 is liable to the fine or
imprisonment specified in subsection (2), if the person without just
cause fails to-
(a)
give
evidence at the hearing of an appeal;
(b)
remain
in attendance throughout the proceedings unless excused by the
president of the tax court; or
(c)
produce
a document or thing in the person's possession or under the person's
control according to the subpoena.
(2)
The president of the tax court may impose a fine or, in
default of payment, imprisonment for a period not exceeding three
months,
on a person described in subsection (1) upon being satisfied
by-
(a)
oath
or solemn declaration; or
the return of the person by whom the subpoena was served that the
person has been duly subpoenaed and that the person's reasonable
expenses have been paid or offered.
(3)
The president of the tax court
may, in addition to imposing a fine or imprisonment under subsection
(2), issue a warrant for the
person to be apprehended and brought to
give evidence or to produce the document or thing in accordance with
the subpoena.
(4)
A fine imposed under subsection
(2) is enforceable as if it were a penalty imposed by a High Court in
similar circumstances and
any laws applicable in respect of a penalty
imposed by a High Court apply with the necessary changes in respect
of the fine.
(5)
The president of the tax court
may, on good cause shown, remit the whole or any part of the fine or
imprisonment imposed under subsection
(2).
(6)
The president of the tax court
may order the costs of a postponement or adjournment resulting from
the default of a witness, or
a portion of the costs, to be paid out
of a fine imposed under subsection (2).
19 It will be
seen that the presiding officer’s powers relate only to the
imposition of criminal sanctions for failures to
give evidence or
produce documents or things at the inquiry. It is in that context
that the presiding officer determines the existence
or otherwise for
the refusal to testify at all or in relation to a particular question
or in relation to the production of a document.
A presiding officer
is not empowered in so many words to conduct the kind of inquiry
contemplated in the reconsideration application.
And the challenge
which will almost certainly be mounted at the inquiry will not only
take place when on of the applicants gives
evidence but also when
other witnesses testify.
[iv]
The challenge, as identified before me, will broadly be that a
document was obtained unlawfully and, thus, should not be used in
the
inquiry at all. In addition there will be challenges to what the
applicants will contend is evidence derivatively obtained
from the
hypothetically unlawful seizure of the document in question. The
presiding officer cannot be expected to evaluate the
prospects of
success of these kinds of challenges. A presiding officer cannot
exercise a discretion under s 66(4) Of the TAA because
that
discretion is vested only in the court. A presiding officer most
certainly should not and, I have no doubt, would not risk
encroaching
onto the terrain of the court hearing the reconsideration
application.
20
All
this would make for a most unwieldy enquiry should the urgent relief
ultimately formulated by counsel for the applicants not
be granted.
Against this, SARS would suffer little prejudice. The inquiry will
continue and the obligation of the applicants to
give evidence will
merely be postponed, unless their proposed challenge to the order
convening the inquiry is ultimately successful.
21
Counsel
for SARS submitted that on the material presently before me I should
find that the reconsideration application had no prospects
of
success. I do not think I should enter upon this issue. It is a
matter for the court hearing the reconsideration application
to
decide.
22
Counsel asked me to make a ruling on the urgent relief and
allow them to approach the court for further directions in relation
to
the balance of the relief sought on a non-urgent basis. I shall
accede to this request.
I would add
that the facts placed before me justify a request to the registrar to
allow the reconsideration application such promotion
on the roll as
circumstances may allow. No doubt, in accordance with the practice in
this Division, the parties will approach the
Deputy Judge- President
in this regard.
23
I
make the following ruling:
1 Until the final
outcome of the reconsideration application pending in this court
under case no. SARS 1/2013 (“the reconsideration
application”):
the first, second and third
applicants are excused from giving evidence at the inquiry convened
before the second respondent
as presiding officer pursuant to the
order of Ledwaba DJP made under case no SARS 4/2013 on 9 October
2013 (“the inquiry”);
and
no document or information
derived from the search and seizure pursuant to the warrant issued
by VanderMerwe DJP on 18 April
2013 be employed in the examination
of any witness at the inquiry;
2 Nothing in the
ruling in 1 above shall be interpreted to mean that any document or
information obtained by SARS from a source
other than the search and
seizure effected pursuant to the warrant may not be presented or
adduced at the inquiry.
3 For avoidance
of doubt, it is declared that the mere fact that a document was
obtained in or pursuant to such search and seizure
or that an item of
information became available to SARS pursuant to such search and
seizure will not preclude the presiding officer
from receiving a
similar or identical document or an item of information obtained from
a source other than the search and seizure.
4 The case will
stand down to enable the parties to make submissions (which may
include a recasting of the rulings above to achieve
greater clarity
and effectiveness) on the further conduct of the case.
5 The costs
incurred to date will be reserved for the consideration of the court
hearing the reconsideration application.
NB Tuchten
Judge of the High Court
18
November 2013
HuangSARS4 13
[i]
Rule 6(12(c) reads: A person against whom an order was granted in
his absence in an urgent application may by notice set down
the
matter for reconsideration of the order.
[ii]
Thint (Pty) Ltd v National Director of Public Prosecutions and
Others; Zuma and Another v National Director of Public Prosecutions
and Another
2009 1 SA 1
CC paras
220-223
[iii]
2012
6 SA 67
SCA para 30
[iv]
Counsel for SARS undertook in open court not to object to the
presence of the applicants’ legal representatives throughout
the inquiry even though he made plain that the presiding officer
would be asked to direct that the applicants should not be present
during the examination of certain witnesses. The undertaking was
made subject to certain confidentiality conditions with which
I do
not find it necessary to deal in the present context.